A Federal Reserve Prez explains Janet Yellen’s Dr Strangelove plans to increase interest rates in a recession to a puzzled Senate committee…


Watch a president of a US regional Federal Reserve Bank answer questions before the Senate Finance Committee on the announcement by President Janet Yellen that she plans to raise interest rates again in March and stop QE.

Click on the link below to see the highlights of the Senate hearing…

https://www.youtube.com/watch?v=mzddAYYDZkk
     
TRANSCRIPT : SENATE FINANCE COMMITTEE CHAIR  MUFFLEY QUESTIONS FEDERAL RESERVE BANK OF STRANGELOVE PRESIDENT ADOLF VON KLUTZ

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(WITH AN EXCLUSIVE PREVIEW OF ONE OF THE MATHEMATICAL MODEL THE FED IS USING TO JUSTIFY RAISING INTEREST RATES IN THE MIDDLE OF A RECESSION…)

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              VON KLUTZ

                 (with Germanic coolness)
How many interest rates does the Federal President Janet Yellen  plan this year?
Three – possibly six this year.  Perhaps another six or nine next year.

                       SENATOR MUFFLEY
That many? Doen’t that mean interest at 3% to 4% this year and 7% or 9% next year?

                       VON KLUTZ
                 (carefully putting on glasses)
Yes.  The economy is booming under Donald Trump, and there that means dangerous inflation.

     SENATOR MUFFLEY looks blankly at VON KLUTZ.

But Trump has only been in office 2 weeks. He has not even got a Treasury Secretary confirmed yet or announced his policies. And you said we were in deep recession when the last president was in office a few months ago in October.

                       VON KLUTZ
But we all know that Trump plans a huge stimulus and massive tax cuts. That means inflation. But with big, fast interest rate hikes, that inflation will be wiped out in weeks.
 
                       SENATOR MUFFLEY
But such huge, rapid hikes would devastate the economy altogether. Overleveraged consumers would have no disposable income left to spend on food, let alone housing if they have to pay those kind of interest rates on their loans. There will be a massive wave of foreclosures.

                       VON KLUTZ
It cannot be ruled out. Incidentally, consumers will be doubly squeezed. Their income will drop but their mortages will increase six per cent or more in the next three years as we unwind our holdings of foreclosure mortgages.

                    SENATOR MUFFLEY
There will be a massive wave of foreclosures.

                       VON KLUTZ
                 (smiling wisely)
             Mister Senator, man is an amazingly adaptable creature.  After all, the conditions would be far superior to those, say, of the Nazi concentration camps, where there is ample evidence most of the wretched creatures clung desperately to life.

                  SENATOR  MUFFLEY
If the federal government has to pay these kinds of interest rates on our historical debt, it will go bankrupt.
 
                    VON KLUTZ
Not necessarily. China can bail it out.

                SENATOR  MUFFLEY
Companies could not afford to service their debts, let alone borrow to invest in new production.
 
                   VON KLUTZ
             I shouldn’t be surprised if several hundred companies could continue in business.

                   SENATOR MUFFLEY
             Several hundred? But wouldn’t that mean we have to import all the things we need?

                       VON KLUTZ
                 (carefully putting on glasses)
             No. There will be no import surge because no one would have any money left to buy them.

                      SENATOR  MUFFLEY
             But does the data show that the economy is booming? Don’t sluggish demand, slowing job growth point to a continuing recession?

                       VON KLUTZ
                 (smiling wisely)
             Economics is very complicated. Data is difficult to analyze for anyone without the required expertise.

                     SENATOR  MUFFLEY
             Well this chart here shows that the Federal Reserve’s last hike just a month ago caused a 5% drop in demand in gasoline alone?

                    VON KLUTZ
                 (smiling wisely, holding up a chart)
             Economics is very, very complex, much more complex than one chart. This is one of the formulas we use to model the economy, for example.

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                       SENATOR  MUFFLEY
             Can you explain to me what is going to cause inflation to justify those kinds of interest rate increases as you are planning even supposing Trump goes ahead with huge stimulus project and tax cuts?

                       VON KLUTZ
Of course. The formula is simple. It is…

                 SENATOR  MUFFLEY
What do those signs and numbers mean?

                      VON KLUTZ
             A special committee would have to be appointed
             to explain the formula to lay people like yourself. Naturally, I do not want to imply you lack the brain power to understand economics, but I would estimate only 1 in a 1000 people with an IQ of 160, something I have, can grasp why interest rates have to soar in the middle of a recession when Americans are burdened historical levels of debt at the end of a so called bust boom cycle.

                       SENATOR  MUFFLEY
             But, look here, Von Klutz.  How can we hold you to account if we can’t follow your reasoning?

                       VON KLUTZ
             Certainly you can’t, sir.  If you cannot understand what I am saying, you can’t pass judgement, can you?

                       SENATOR SCHMUCK
                 (judiciously)
             But if you can’t explain it in simpler terms, should you be in charge of the Federal Reserve? I mean even Einstein managed to explain the relationship between energy and mass with the simple formula ‎E=MC2. Surely, the formula for raising interest rates can’t be as complicated as you make out?

                       VON KLUTZ
             Regrettably, it is.  The physics of the universe is very simple compared to understanding the US economy. There are many factors to consider such as the demand for US debt.

 SENATOR SCHMUCK
                 Is there demand?

                       VON KLUTZ
             No. It is rock bottom because we and the Chinese have started selling trillions of it, flooding the market. Supply is outstripping demand by many magnitudes.

SENATOR SCHMUCK
                 So you have stopped buying US debt as you did under Obama?

                       VON KLUTZ
             Yes, we have ended so called Quantitative Easing as of November 8th.

                    SENATOR SCHMUCK
                 But isn’t stopping QE going to push up interest rates the US has to pay to refinance its debt and push us deeper into debt?

                       VON KLUTZ
             There may be a correlation. But it was an experiment we now want to end. Many Fed officials have  discussed the need for the central bank to reduce its bond holdings as well as our support for entities holding foreclosure mortgages.

                       SENATOR SCHMUCK
                 But the German Bundesbank has just brought out a study admitting that the European Central Banks purchasing of government debt has kept interest on the euro low, made the currency more competitive and increased their exports to us.

                       VON KLUTZ
             Well, they were unusually frank, weren’t they? Our communications policy is different.

                   SENATOR SCHMUCK
                 To be not frank?

                       VON KLUTZ
             I meant, to capture accurately the complex variables.

                    SENATOR SCHMUCK
                 Such as?

                       VON KLUTZ
            You must remember, Senator Muffly, the Fed amassed trillions of Treasuries and foreclosure mortgage outside our mandate since the bank crisis in 2008 and 2009. In fact, we pratically own half of the USA debt, in the meantime. To buy up all the private and government debt is not the function of a US central bank. Our function is to squeeze the interest for all that debt out of the consumer and tax revenues of the government for Wall Street bankers. Now, I know in Japan the central bank has bought up so much debt that it owns virtually all the country’s debt in the meantime. But we in the USA are more adventurous and freedom loving in our approach.

                SENATOR SCHMUCK
                 But if you put trillions of bonds on the market, and stop buying maturing debt, and, so, push up interest rates, won’t that make our dollar strong and hamper us in exporting more while encouraging more imports?

                       VON KLUTZ
             There are many angles to this multi dimensional, facetted question.

                 SENATOR SCHMUCK
             Von Klutz, I must confess I am beginning to suspect that you want to undermine President Donald Trump. Your analysis flies in the face of all the economic data. We are in a recession and the last Federal Interest rate hike has made it worse. If the economy is crushed by more interest rate hikes, you know that there will be a public backlash against Trump. He will be voted out of office.

                       VON KLUTZ
             Correct, if the economy is devastated, that man, that Trump fellow,  will finally have to leave office and Goldman Sachs and we can rule again and rake in profits. Because as soon as the Frank Dood is repealed, there will be another round of tax payer bailouts for all the bust mortgage companies…Mein Fuhrer…

                        SENATOR
             So, you’ve just admitted you want Trump out of office and are using interest rates to devastate the economy. Mein Fuhrer…

                       VON KLUTZ
             No, you misunderstood this complex issue. After we crush inflation, and there are only a nucleus of survivors and companies left, there will be growth, phenomenal growth. Mein Fuhrer,… I can walk!

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